Q2 Construction Output – Today is Just Another Replay of Yesterday…

If there is one thing that people don’t like, it is finding out that something they thought happened, didn’t actually happen. So, you can imagine the look on my face when the Office for National Statistics published their latest construction output data (for June & Q2) and suddenly the pre-recession peak of construction output had changed from 2008 Q1 to 2004 Q1. Luckily you don’t need to imagine as an artist named Edvard has captured it nicely.

Whilst I wait for ONS to get back to me on why this has happened, I thought I would explain what this most recent data will mean. The short answer is not much. The long answer is…

Construction output in Q2 was 1.4% higher than Q1 (which in turn was 1.8% lower than Q4). A part of this is catch-up from a poor Q1, where we had snow in January and March, but there also appear to be some areas of strong growth that may well be sustained. Overall, output is still 0.5% lower than a year ago and 16% lower than peak (the new 2004 Q1 peak of course – don’t get me started!).

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It won’t be a surprise that housing is the strongest sector. Private housing in the second quarter was 7.6% higher than in Q1 and 8.2% higher than a year earlier. Although it is still 33% lower than at peak in 2007 Q1, this is still strong growth. Wider economic recovery and government policies have created a rise in demand (and prices) that the house builders are willing to meet with increased supply.

Public housing output also grew considerably in Q2 (12.8% compared to the first quarter and 9.8% higher than a year earlier) but Q1 this year and Q2 last year were relative low points.

The concerning sector has to be private commercial, which is primarily offices and retail. It is the largest of the construction sectors, worth £22 billion of work each year but in Q2 fell 3.1% compared with Q1 and was 8.2% lower than a year ago. There is still a lot of work going on in Central London, especially in the City, so offices and retail construction in the rest of the country must be dead in the water.

Infrastructure is a bit of a strange one. We keep hearing announcements from government of billions and billions of investment in infrastructure (£30 billion in 2011 & 2012). Yet infrastructure output fell 13% last year and has been broadly stable since, even with the largest infrastructure project in Europe, Crossrail, on-going. In terms of the government announcements made in December, the finance only became available in April so if this does feed through, it is likely to only start to feed through in the second half of the year and mainly in 2014.

So, overall we have growth in Q2 but will it last? Well, the private housing growth should be sustained and if commercial recovers then it will be due to work in London as there is little in the pipeline elsewhere. As for infrastructure recovery, it clearly is dependent upon government announcements feeding through. If they don’t, I’ll be making that face again.